MarketWatch First Take: On the upswing: real wages are growing the most in two years

One lingering chink in the current economic environment had been that wages actually weren’t growing when adjusted for inflation.

On a variety of measures, that’s just not true anymore.

The latest inflation data from the Labor Department bears that out. One way to look at it is weekly earnings for what are called production and nonsupervisory workers, which rose 1.2% in the 12 months ending December. That’s the fastest growth in more than two years.

And it’s on the high end of what’s historically been the case. The median year-over-year growth in real average weekly earnings for production and nonsupervisory workers over the last 50 years is just 0.1%.

Measured just on an hourly basis the numbers look even rosier — up 1.5% in the 12 months to December, also the strongest in over two years.

Part of what’s happening is that inflation just hasn’t been particularly strong. Lower prices at the pump in particular are restraining inflation, and the so-called core measures of prices aren’t growing that fast either.

That temperate inflation has been matched with continued pay gains for workers. On a variety of metrics, workers — and particularly on the lower end of the income spectrum — are taking home more money, in an absolute and not just relative sense.

The three-month average of nominal weighted median wage growth was 4% in the 12 months to November, according to the Atlanta Fed, also a two-year high.

The good news then is what seems to be the death of what economists call the Phillips Curve. Typically, when unemployment is low, wages respond, and so too does inflation. For a while, the tightening labor market really didn’t make it into paychecks, but even now that it is, broader inflation still isn’t picking up.

That gives the Federal Reserve room to slow or even end its cycle of interest-rate hikes.

Related: Fed’s Clarida says patience on interest rates ‘is a virtue’

One key thing to watch is whether the declines in oil prices restrain the broader economy, now that the U.S. is a major energy producer and not just consumer. But while the oil price collapse of 2014 really did sap the economy, this price decline isn’t seeming to do that.

Fed Chairman Powell addressed that question on Thursday.

“We have a very large domestic oil industry. But still, on balance, we think there’s still a modest benefit overall in the aggregate to — for lower oil prices,” Powell told Carlyle Group Co-Executive Chairman David Rubenstein.

What could be happening is that U.S. energy producers are more efficient than they were even four years ago. Powell was asked what price is an equilibrium for oil prices and the economy.

“You know, it’s hard to say,” Powell replied. “I mean, the question would be: What is the — what is the breakeven for these shale producers? And there are — there are different views on that.”

For now at least, the U.S. seems to be enjoying the fruits of lower prices without paying a price for it.

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